Tuesday, March 30, 2010

Non-profits can’t possibly save the news

An amazing number of smart and sophisticated people continue to harbor the fantasy that philanthropic contributions can take over funding journalism from the media companies that traditionally have supported the press.

In the interests of moving discussions about the endangered outlook for professional journalism back into the realm of realistic thinking, we’re going to do the simple math today to prove conclusively why this never will happen.

The math, as detailed below, shows that it would take $88 billion – or nearly a third of all the $307.7 billion donated to charity in 2008 – to fund the reporting still being done at America’s seriously straitened newspapers.

If you want to cover magazines and commercial broadcasting – not to mention the myriad journalism start-ups responding to the meltdown of the mainstream media – it would take billions more in philanthropic support. But the number is so big and unapproachable that I gave up counting when I saw how comparatively little – $141 million – was raised in the last four years to fund non-profit news ventures.

To be sure, a few boutique non-profits like Pro Publica, the Texas Tribune and the Center for Independent Media (recently renamed the American Independent News Network) have been funded generously to date to provide specialized reporting on select topics.But they make no pretense of providing the ongoing and intense beat coverage that historically were the meat-and-potatoes of quality local journalism.

The sharp contraction in recent years in the sales and profitability of for-profit media companies has led to dramatic and traumatic staff reductions in almost every newsroom in the land.As the economy tanked in 2008, even philanthropically supported public broadcasters had to cut staff when contributions declined from not only foundations but also viewers and listeners like you.

Rick Edmonds, the estimable media economics expert at the Poynter Institute, calculated that American newspapers are spending $4.4 billion today on news-gathering, or about 29% less than the $6.2 billion that funded newsrooms as recently as 2006.That’s a drop of $1.8 billion.

If you wanted to sustain the current level of newspaper coverage by replacing for-profit funding with non-profit dollars, the typical approach would be to raise an endowment that would be invested conservatively to produce an annual return of 5%.The investment income would be distributed each year to provide the operating budgets for non-profit news organizations.

The endowment necessary to provide $4.4 billion in annual newsroom funding would be $88 billion. This happens to be 29% of the entire $307.7 billion contributed to charity in 2008, according to data published by the Giving USA Foundation, the non-profit arm of an organization of professional fund-raisers.

Given the downturn in the economy since 2008, it is a safe bet that charitable donations dropped in 2009 and probably will be less than $307 billion in this year, too.

The decline in donations is not the biggest challenge for those counting on charity to rescue the press.The infinitesimal amount of support to date for non-profit news projects suggests that philanthropists have other long-standing priorities.

As reported recently in the annual State of News Media study by the Pew Project for Excellence in Journalism, Jan Schaffer of the J-Lab at American University estimated that only $141 million (not including public broadcasting) of philanthropic support has gone into non-profit journalism efforts in the last four years.The sum is less than 0.05% of the $307 billion given to charity in 2008 alone.

In light of the above objective facts, it is clear that there are only two ways to establish a substantial philanthropic base to preserve journalism:

Either (1) vast new sources of charitable funding would have to be identified or (2) existing philanthropists would have to be persuaded to abandon their traditional commitments (see chart below) to religious, educational, social service, cultural, environmental and other organizations.

While there is a pressing need to save the press, a major shift in the philanthropic paradigm seems unlikely, especially in an era in which most folks – with the notable exception of a fortunate few – seem to be tightening their belts.

So, let’s stop dreaming about a visit from the Non-Profit News Bunny and get serious about discovering some realistic possibilities.

41 Comments:

Alan-- This post seems to me to obliterate a straw man. What "smart and sophisticated people continue to harbor the fantasy that philanthropic contributions can take over funding journalism from the media companies that traditionally have supported the press"?Non-profits have an emerging and exciting place, particularly in niches where the market is failing to deliver content, such as investigative, international and state house reporting. These are the new "public goods" of journalism. But who ever said non-profits could be a replacement for the press as a whole?-Dick Tofel (GM, ProPublica)

Thanks for putting the data in perspective. Now, could you please identify some of the "amazing number" of people who are telling you nonprofit media will replace the news industry? I can't recall ever seeing anyone make such a blanket statement (and I do read quite a bit in this area). I hear people saying nonprofit might be part of the solution. This is not an either-or scenario. There will be multiple news sources and revenue models

An amazing number of smart and sophisticated people continue to harbor the fantasy that philanthropic contributions can take over funding journalism from the media companies that traditionally have supported the press.

what is killing the industry is a myopic political view of themselves. They keep arguing they are failing for all kinds of things but the obvious. They are far more liberal than the average reader. Look at any news source that is growing or staying in the black and it leans conservative. Newspapers will never get out of the holes they make until the are diverse in more than skin color.

There's another problem with relying on philanthropic funding that Alan didn't broach here: There are only so many rich people in any given town, and they only want to give away so much of their money.

I ran the numbers in New Mexico, where I work, and found that the wealthiest people collectively earn more in interest income than they give to tax-exempt organizations.

Your math has permanent endowments all created in one year -- poof! That one-time amount is staggering.

In reality, endowments are built slowly over many years. Since there still is advertising support, it's realistic to supplement income with endowment growth so that over time the endowment investment returns would replace shrinking commercial support.

I'm not saying it would work and not saying I love the idea, but I think the "all at once" math is not a constructive insight.

Another useful dollars and cents driven analysis of this question-- and one that I think usefully goes beyond the "will nonprofits replace newspapers" strawman-- is this paper by James T. Hamilton of Duke University

"Subsidizing the Watchdog: What would it Cost to Support Investigative Journalism at a Large Metropolitan Daily Newspaper?"

Some of the numbers:

Funding a beat reporter for one year ($61,500)

Funding an investigative reporting unit for one year ($500,000)

Funding a dedicated page each week ($106,000)

Funding an investigative series ($200,000)

Taking Alan's very good analysis of the limitations of the non-profit funding stream to heart, I would re-ask the question-- would local foundations be willing to step up and bear any of these costs? Which ones? For what purposes? For how long?

We need to face up to the fact that what's happening in news is symptomatic of a larger problem: Like every other part of the American economy, news is dissolving into a commodity for the haves and have-nots.

The "haves" will wind up with organic, nutritious food; energy-efficient homes; good educations for children; quality entertainment from expensive cable television and books; and smart, informed news.

The "have-nots" will wind up with Cheetos and Pepsi; poor housing; failing schools; Dancing with the Stars and Survivor; and amateur, biased news.

You created a firestorm with this one, but I think you are right. And proof of that is the debate over launching non-profit newspapers is several years old, and I have yet to see one publication go non-profit. Publishers see this as a temporary problem, and contend ads and some circulation will come back as the economy recovers. Of course, they are wrong, but we have to go through this phase for a few more years before they wake up to the new realies.

I agree with Alan's main point. I don't think there's a chance in hell that philanthropy can replace the revenues the commercial news industry once supplied to journalism, and I don't know anyone who's even minimally informed about the problem who does think this. But I would love to see a link to a writer making that argument because it would be fascinating to see how he or she got there.

If we're going to have an intelligent and practical discussion about this, rather than a straw-stuffing festival, we have to try to look at a complete picture, and no this list is not complete: new business models and the renovation of the old, new kinds of revenues (including philanthropy, but that's only one) and where in the future they may come from, eliminating duplication which eliminates the need for replacing those revenues (thus the logic of "do what you do best and link to the rest") getting more honest about editorial production that was low quality and in low demand but we never knew it because we didn't have the tools to tell us, the other costs savings that come from publishing online and using the Internet, the amateur contribution and what it represents in terms of revenues unneeded, and other harder to measure things like "full transparency for Congressional earmarks means you don't need a team of investigative reporters digging into earmarks because it's all laid out there for everyone to see."

In all of these cases, it short-circuits and sidetracks the discussion when someone looks at any individual item on my list and sneers, "Oh... right. So that's going to replace the Baghdad bureau the New York Time is funding to the tune of $5 million per year. Gimme a break."

The answer is always, "No, it won't replace. But we have to factor it in."

At this point so that's gonna replace...? gimme a break! is the sound of blowhards and know-nothings wasting our time. We should show that person to the kid's table and go on with our work. I have no patience for it and if you care about solving this problem you shouldn't either.

By the way, here's a post I wrote on attempting to list all the known sources of subsidy for news production. Guess what: None of them replace classified ads lost to Craiglist. But you knew that... right?

I agree with the Alan's premise wholeheartedly; there's a lot of activity out there about the nonprofit model and it deserves to be looked at realistically, as he does.

That said, I think there's one flaw in his calculations: In practice, only a small percentage of the work force at an average newspaper is involved in serious local newsgathering, so the reporting power that needed to be funded to provide actual local news would be correspondingly fractional.

Here in Phoenix, for example, at the Arizona Republic, there is a paltry percentage of actual local news stories in the paper each day. It's hard for me to believe even a quarter of the entire staff there even comes in contact with actual news in a given cycle.

It accordingly should be noted that the one onus a theoretically wholly funded) nonprofit wouldn't have is the need to staff all the silly and frothy ad-driven sections--travel, much of the arts section, and so forth. (Sports is the big exception.)

Sorry, Alan, but I can't seem to find the problem with nonprofits, public citizens and a world of informed sources investing in journalism just as newspapers are disinvesting in it. Seems like the right thing to do under the circumstances. They might even do it better.

I'm naturally glad to see discussion continue of my post last fall that at least $1.6 million annually of newspaper news budgets has gone missing and $4.4 billion remains. The point of that piece was to give a sense of scale and invite reflection on how much non-profit effort it will take to make up much of the difference.

Maybe, as your critics say, total replacement via endowment is not in the cards. But $1 million, $5 million, even $10 million investments are small fractions. Whether they gain back some of the ground by putting a much higher share of budget into news and focusing on the important stuff is a fair question.

While I don't think all sorts of people are suggesting endowed non-profits take over from newspapers, versions of the idea have been floated. You will recall the New York Times op ed of a year ago in which two Yale investment officers suggested applying a share of university or big foundation endowments to news creation. I think pay as you go makes more sense but talking about endowments is not off the table.

It is also reasonable to raise the question of what can make up a further shortfall if the newspaper business keeps on shrinking (as you seem to think it will). As I have written in several venues, though, an upturn may raise the old question of what newspapers drop to the bottom line and what they reinvest in news quality. That will put a practical spotlight back on what non-profits structures may do instead or do better.

The straw man is claiming there are all these writers and thinkers and do-ers out there who believe that philanthropy can (in Alan's words) "take over from the media companies that have traditionally supported the press," that is replace them, or ride to the rescue and "save" public service journalism.

There ain't.

In the real world, where the adults are trying to have a serious discussion about what to do, no one is making a "will replace" or "here's your savior" argument about philanthropy and news. They are asking: okay, what can non-profits do? They are trying to see where philanthropy might fit into a more complex and many-sided model for funding serious journalism. They are reasoning pragmatically.

Ian goes to the kids table because Downie and Schudson do not say, "philanthropy can replace..." They include it as one element in what has to be a complex solution. And savethenews.org does not claim that charity can save the news. It includes the non-profit sector as part of the solution. The author Ian pointed to at CJR, McChesney, is more in favor of government funding. He doesn't see charity as the answer, either.

I second what Dick Tofel and others said about this being a straw man argument. But there's another point that's completely missing here: A lot of nonprofits are leveraging foundation money and their relationships with readers to build other revenue sources -- not the least of which is good, old-fashioned advertising. In the old days, it was called the virtuous cycle.

Building on what Jim says -- "nonprofit" is not a synonym for "charity." There are revenue-generating nonprofits that sustain their operations with earned income. They're not subject to the pressure on margins and quarterly earnings that has made so many publicly traded media companies race to the bottom. This is one structure news entrepreneurs should consider.

Stop giving your unique content away for free and get out from under those huge debt loads and newspapers would survive. Whenever a new medium (radio, TV, the Internet) is added, the ad pie is cut into smaller pieces. Such is the nature of competition. But newspapers have accelerated the decline by giving their unique content away on the web and having to service oversized loans.

In response to Jay, the academic world is abuzz with nonprofit ideas -- and the McChesney-Nichols book has gotten far more review space than it probably deserves (they like the idea of government, the largest nonprofit of all, subsidizing news-gathering).

On the other hand, the publications should not have an endowment -- the foundations already do. So the target need is (today) $1.8 billion to $6 billion a year. Nonprofit support was 10% of that and has probably peaked. And there was a time -- in the 1960s -- that nonprofits run by folks like Nader did much of the nation's investigative reporting.

All that said, I agree that competition for nonprofit funding is too great, and stick to the line I have been repeating (to no one's approval) at academic gatherings for the past two years: Media organizations have to adopt more value-laden approaches for helping advertisers advertise, and have to develop a myriad of new revenue streams. None of that is impossible. Look at Yahoo's "go local" approach. Hell, the NYT sells ship models. every little bit helps.

Citizen journalism (free reporting and cheap freelancers) is good. So is "civic journalism." I always got nervous about it in the 90s, as I watched the Bergen Record, my local paper at the time, cut day-to-day reporting to favor episodic splashy "parachute study" stories, cutting quality. No there's not much left to replace.

But if you think about it, the savings are small. Newsgathering is only a quarter of the cost of newspapers' doing business. So... cut a bit more. If you can keep or raise quality, great. But you can't run the enterprise on the savings.

You MUST focus on the revenue side, and the culture war to be fought there is far, far worse than the culture war in the newsroom. Ad sales folks see the web in general and social media in particular as commission-robbing. Their bosses see investment costs they do not want to make up-front. And none of them understand it.

I edit a national political magazine published by a 501(c)3. To date, exactly one other journalism person has ever asked me, "So, how does the whole nonprofit thing work in practice?"

There has actually been an explosion in acts of (and jobs in) journalism being funded by nonprofits over the past decade. But since people who talk about The State of Journalism tend to use as their starting points the fate of the largest news organizations, this little-guy stuff is always under-noticed and generally misunderstood.

This entire conversation is silly. Newspapers have failed in all but exclusive markets because they don't have a purpose anyone cares about. This will probably get me sent to the kids' table. Good. Kids have a lot more common sense that some of these silly posters....

An article appeared recently in the New York Times which discussed how many for-profit trade schools are doing very well in these difficult times. It seems, however, that their students don't always fare so well. Federally backed student loans are used to pay for this training over 80% of the time, and many students cannot afford the debt load when it comes time to repay them.

During all this talk about costs, I have to wonder what would happen if the emphasis of newspapers were put on "news" and lose the "paper."

After all, the cost of printing and distributing the physical product of a newspaper is no small part of their budget.

Newspapers are clinging to that physical paper with a death grip because their websites don't make nearly as much money, but if all of the newspapers were to abandon the paper, I think there could be some amazing streamlining of budgets.

Perhaps I'm just too young to "get it," but it seems rediculous to me to be laying off journalists while still holding on to printing and shipping costs.

It seems that the crux of the concerns is that classified revenues and monopoly status used to shelter a group of newsy people in every local community to provide investigative journalism.

In today's marketplace, we do not know how to rebuild that shelter with other means as quickly as the old shelter is dissolving.

Isn't there room for a discussion about ways to extend the NPR or PBS models to provide a larger shelter for the investigative journalism any local community requires?

I fear that Alan's macro approach of looking at the numbers as a whole is the wrong way to find a solution, since all of those numbers were built artificially, so looking to sustain that is the false god.

Steve: I don't have any big empirical claims to make about whether Craigslist has "taken" revenue from newspapers (the matter is in dispute, as you know) and I don't believe that revenues "belong" to any type of media organization to begin with. So don't look to me for any critique on where you went wrong. I have none. I was making a rhetorical point about replacenik thinking. I'm pretty certain the replaceniks will keep doing what they do, debunking a non-existent argument, regardless of what we say.

I agree with Alan and Jay and others that there is not enough foundation and charitable money out there to pay for in-depth accountability reporting in communities across the country. For Alan, this finding suggests that we should “get serious” about finding better business models. However, I am as skeptical about the future of advertising and paywalls as I am about raising an $88 billion endowment. For me, if there is not enough private or foundation money out there, this suggests we need to get serious about the role of policy and public funding.

We need better policies to foster the kind of journalism and media system we want to see.

Starting small: A key flaw in the debate over the future of news and nonprofits is that we are locked in old definitions and inflexible legal structures. David Clay Johnson references this in his response to Alan: “Current law does not make a hybrid of commercial-endowment supported journalism possible.” Similarly, at the recent FTC workshop on the future of news, Allen R. Bromberger called on the agency to address these issues.

This is a policy issue, and we need journalists, media economists and concerned citizens to become involved in the debates that will shape these laws in the future - not to ignore them at every turn.

And a bit bigger policy issue: We also must look at the current structures that already exist and the profound opportunities that they offer. Alan envisions the only two ways for noncommercial journalism to thrive: either find “vast new sources of charitable funding” or ask philanthropists “to abandon their traditional commitments.” An obvious third option would be an expansion of public media, as has been called for by the bipartisan Knight Commission and in the Downie/Schudson report (as well as many, many others.) As others have noted - this can only be one part of a multi-faceted, diverse media system that includes nonprofits, higher ed, commercial media, and more. It's not about replacing everything, it's about building better media.

There was a PBS Frontline on this very subject. Trading news companies on Wall Street is killing the industry, but I'm not sure how much the non-profit answer will stop the bleeding either. There's not a lot of money out there for anything these days. I'm not convinced it's the savior of real news.

I have been in the newspaper business all of my life (in management, news and advertising roles) and love it dearly, but I am a capitalist. If newspapers are failing it must be because they aren't giving people what they want and/or are obsolete.

If there probably is entirely the delivery system, then why do the many fine, informative newspaper Web sites fail to have the impact on their communities that the print newspaper had/has? Why aren't newspaper Web sites brimming with ads?

As someone else said, the news media is far more liberal than the readership and often exhibits a condescending attitude toward readership.

Speaking from the smaller, community newspaper perspective, I have been part of strategy meetings for organizations that were on the brink financially. The question was one of survival.

What I often found was that the news side was detached from the process. They had contempt for the advertising and circulation operations and felt such meetings didn't involve them.

I am not for compromising the reporting of news, but it seems to me there are some things that are just common sense.

For example...

At Christmas time, I've seen news departments do big, beautiful feature stories on the Christmas tree farm that won't give our ad salespeople the time of day. They could just have easily featured the farm that purchased a series of ads.

I've see the editor of a small, struggling community daily going through the mail and tossing hometown news releases into the trash can...stories about young men and women from his community, serving in a time of war, and he didn't think it was important.

I've seen community newspaper reporters take photos of kids doing something at a school, and then not take the time to name to kids pictured.

All of this is small potatoes, I suppose, but we'll never go wrong giving people what they want.

much like traditional newspaper, succesful online news sites are lead by rev & business execs with a strong experience/understanding of journalism....NOT really smart journos, editors and educators that sorta/kinda know sales and business.

successful online news sites employ every revenue tactic in the book to build a profitable environment, that hard news can flourish in.

About Me

Alan D. Mutter is perhaps the only CEO in Silicon Valley who knows how to set type one letter at a time.
Mutter began his career as a newspaper columnist and editor at the Chicago Daily News and later rose to City Editor of the Chicago Sun-Times. In 1984, he became No. 2 editor of the San Francisco Chronicle.
He left the newspaper business in 1988 to join InterMedia Partners, a start-up that became one of the largest cable-TV companies in the U.S.
Mutter was the COO of InterMedia when he moved to Silicon Valley in 1996 to join the first of the three start-up companies he led as CEO.
The companies he headed were a pioneering Internet service provider and two enterprise-software companies.
Mutter now is a consultant specializing in corporate initiatives and new media ventures involving journalism and technology. He ordinarily does not write about clients or subjects that will affect their interests. In the rare event he does, this will be fully disclosed.
Mutter also is on the adjunct faculty of the Graduate School of Journalism at the University of California at Berkeley.